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How an IPO Helps in M&A

How an IPO Helps in M&A An initial public offering (IPO) can often provide a powerful stimulus to private companies seeking to pursue an acquisition‐driven growth strategy. Based on a comprehensive analysis of U.S. IPOs, the authors show that newly public companies are prolific acquirers. Over 30% of companies conducting an IPO make at least one acquisition in their IPO year, and the typical IPO firm makes about four acquisitions during its first five years as a public company. IPOs facilitate M&A not only by providing infusions of capital but also by creating ongoing access to equity and debt markets for cash‐financed deals. In addition, IPOs create an acquisition currency that can prove valuable in stock‐financed deals when the shares are attractively priced. The authors also argue that IPOs improve the ability of companies to conduct M&A by resolving some of the valuation uncertainty facing privately held companies. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Applied Corporate Finance Wiley

How an IPO Helps in M&A

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References (7)

Publisher
Wiley
Copyright
Copyright © 2010 Morgan Stanley
ISSN
1078-1196
eISSN
1745-6622
DOI
10.1111/j.1745-6622.2010.00278.x
Publisher site
See Article on Publisher Site

Abstract

An initial public offering (IPO) can often provide a powerful stimulus to private companies seeking to pursue an acquisition‐driven growth strategy. Based on a comprehensive analysis of U.S. IPOs, the authors show that newly public companies are prolific acquirers. Over 30% of companies conducting an IPO make at least one acquisition in their IPO year, and the typical IPO firm makes about four acquisitions during its first five years as a public company. IPOs facilitate M&A not only by providing infusions of capital but also by creating ongoing access to equity and debt markets for cash‐financed deals. In addition, IPOs create an acquisition currency that can prove valuable in stock‐financed deals when the shares are attractively priced. The authors also argue that IPOs improve the ability of companies to conduct M&A by resolving some of the valuation uncertainty facing privately held companies.

Journal

Journal of Applied Corporate Finance – Wiley

Published: Apr 1, 2010

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